Energy is the lifeblood of the modern economy.
Modern energy is the lifeblood of the modern economy, central to almost every economic activity, from manufacturing to transport to schooling to communicating, and thus integral to any country’s development. It is also one of the main topics on the table at COP24, where policymakers, stakeholders, and climate experts will meet to discuss policy relating to climate change. Other climate-related measures will be insufficient if this central component of an inclusive economic system isn't foregrounded.
Governments looking to reduce poverty and combat exclusion will seek to understand how best to create wealth from the economy and implement a robust efficient energy system that promotes economic growth. In order to develop an inclusive economic policy, it’s vital that energy planning is integrated with other sectors that drive economic growth, such as industrial or agricultural policy — recognising the fundamentals of energy demand.
Energy policy currently
While most low-income countries conduct rudimentary energy planning, it is seldom in the form of an integrated energy plan (IEP) — a powerful policy instrument to signal governments’ intentions regarding the role of energy in the national development visions and regional development strategies. Decisions around energy policy are often supply-side focused, with limited integration of the demand driven by the broader development objectives; in many instances, governments translate policy into legislation without taking cognisance of a coherent sector strategy, leaving unintended consequences lurking in the economic shadows. In some cases, sector strategy is reverse engineered to ‘align’ with the legislative framework, creating unnecessary loopholes and muddying the waters for investors. Equally worrying is the frequency with which legislation appears to have been ‘cut and pasted’ from one country to another, without allowing for the nuances of domestic context.
How can this be improved? An IEP seeks to achieve an efficient balance between energy demand and supply in an effort to avoid constraints on economic growth. Many governments tend to focus on supply-side solutions — that is, energy supply and distribution, and the finances related to supplying it. The demand-side of the energy equation is equally important. The development potential of energy relies heavily on energy solutions appropriate to the needs of the end-user. For example, electricity used for lighting in the home will have different economic impacts than electricity used for irrigation, aluminium smelting, or the telecoms sector. Similarly, solar panels could be a useful intervention to provide household lighting, but impractical in providing baseload energy for mining operations. A successful modern economy is a function of, inter alia, a considered blend of demand sector fundamentals and mix of supply choices, delivering fit-for-purpose energy services that are accessible, affordable, and sustainable.
What is needed to develop a successful IEP? As well as buy-in from relevant government and private sector actors, there needs to be a robust regulatory environment to ensure availability of information.
Supply-side energy policy and associated energy planning is less complicated to implement, as it has fewer stakeholders and their behaviours are easier to influence. Engaging with the demand-side actors, while vital for development-focused growth, is far more complex and requires fairly extensive data to accurately assess the use of energy services. Access to good-quality demand data has been cited by a number of researchers and energy planners as a constraint for effective modelling of energy demand forecasts.
Generally, large demand-side surveys are conducted to collect data. The data can prove difficult to gather, because of complexity related to the ways is will be used, or reluctance of energy users to provide ‘confidential’ information. For example, a typical household may be able to provide information about the total electricity demand (from a service provider bill), but will find it more challenging to break it down by end use such as lighting, mechanical (electric motors), or heating/cooling etc. Data provision regulations may be necessary in order to gather data in the format required: it is a more complex process, but the effort is rewarded. A broad demand side survey will stimulate interest in the energy planning process, so will be important to develop an IEP transparently, through appropriate public consultation.
Integrated energy planning involves making choices about which primary energy sources are prioritised (supply mix), which energy resources would be consumed (demand profile), which conversion technologies are most cost-effective, and which energy services are most appropriate for various consumers. These choices are affected by, and will affect decisions made by, other sectors of the economy, which requires appropriate modelling of the interfaces between energy and other economic sectors as well as modelling of the energy system itself.
A fully-integrated plan must be cognisant of the residential, services, agriculture, transport, and industrial sectors, as well as taking account of plans relating to, energy (such as electricity and petroleum) and water infrastructure development. An IEP also factors in housing, air quality management, greenhouse gas mitigation within the energy sector, and development plans of local authorities as well as macroeconomic drivers related to trade, especially where these relate to energy trade.
A well-developed IEP is a powerful policy instrument for effecting robust energy security. Energy modelling capability is critical and many governments do not have dedicated energy modelling units, suggesting the need for external technical assistance (at least in the short term) but is also an opportunity to develop the appropriate capacity where possible. In addition, capacity building is also needed to support the different technical functions of energy planning to interpret the modelling outputs to synthesise coherent policy interventions.
While interventions may be needed in many countries in order to create and implement IEPs — in terms of attitude, capacity, and prioritisation — such are steps should promote energy planning that ultimately links policy choices to economic development objectives, creating an innovative, sustainable, and inclusive development policy.
Mark Beare is a principal consultant in our Natural Resources and Energy team.